Texas Estate Planning

Have an Estate Plan, for Your Heir’s Sake

Few people want to leave their heirs with a paperwork disaster, but that’s what happens when there’s no estate plan. According to the article “The importance of creating an estate road map for your heirs” from Grand Rapids Business Journal, an estate plan usually involves a will, a durable power of attorney for financial decisions, a health care power of attorney (sometimes known as a designation of patient advocate or a health care proxy) for medical decisions, and often, a trust.

An estate plan also involves making sure assets are titled correctly and beneficiary designations for assets are coordinated with these documents, so assets pass to the people of your choosing in an efficient manner.

It’s always better if this information is gathered together and put in a location that is known to trusted family members.

Another step to consider is leaving a personalized letter of instructions to your spouse or other family members. The letter can be used to explain why you distributed your assets the way you did or guide them on what you’d like them to do with your estate regarding the assets. This is not a legally enforceable document, but it may provide your family members with a level of understanding not otherwise explained in your will.

For most people, retirement accounts, real estate, bank and investment accounts, cars and maybe pensions are the total sum of their estate. If your estate is larger or more complex, i.e., you own a business or a large real estate portfolio, your estate plan may be more complex.

Step-by-step instructions regarding each asset may be helpful for your heirs, including contact information for each asset. They will also find it helpful to have a list of your professional team: your estate planning attorney, financial advisor and accountant.

For certain accounts, instructions may need to be very specific. For a retirement plan, if your spouse survives you, they’ll need to know about rolling the funds into an inherited spousal IRA and naming beneficiaries. Your estate planning attorney can help your surviving spouse avoid any expensive mistakes.

If you own a business, there will be need for more guidance. A succession plan should be set up long in advance of your retirement, so that family members who are active in the business will be able to see it continue, if that is your goal. If the family does not want to run the business, they’ll need to know who to contact to ensure that it maintains its value after your passing, so it can be sold for a healthy profit.

Attorneys and accountants will definitely be able to help your family after your passing, but if you own a business, you know it better than anyone else. Just as you have a business plan for various contingencies, you need to have a plan in the event of your untimely passing. This is lacking for many family-owned businesses, and it often does not end well for the family or the business.

The more detailed the directions you can leave for your family, the better off everyone will be. Having a good estate plan is an act of great kindness to those you love.

Reference: Grand Rapids Business Journal (October 31, 2019) “The importance of creating an estate road map for your heirs”

Succession Planning For Business Owners

A business owner without an estate plan, is a business owner whose business and personal estate are both in jeopardy, says the Augusta Free Press in an article that asks “Own a business? 5 reasons you need an estate plan.”

You need more than a will to plan for incapacity. If you become ill or incapacitated, a will isn’t the estate planning tool that will help you and your family. What you need is a power of attorney (POA). This document names another individual or individuals to manage your finances and your business dealings, while you are unable to do so. Your estate planning attorney can create a power of attorney that limits what the named person, known as an “agent” may do on your behalf, or make it a broad POA so they can do anything they deem necessary.

Your state’s estate plan may not align with your wishes. Every state has its own laws about property distribution in the event a person does not have an estate plan. A popular joke among estate planning attorneys is that if you don’t have an estate plan, your state has one for you—but you may not like it. This is particularly important for business owners. If you have a sibling who you haven’t spoken to in decades, depending upon the laws of your state, that sibling may be first in line for your assets and your business. If that makes you worried, it should.

Caring for a disabled family member. A family that includes individuals with special needs who receive government benefits requires a specific type of estate planning, known as Special Needs Planning. This includes the use of trusts, so a trust owns assets the assets for the benefit of such a family member without putting government benefits at risk.

Help yourself and heirs with tax liability. If your future plan includes leaving your business to your children or another family member, there will be taxes due. What if they don’t have the resources to pay taxes on the business and have to sell it in a fire sale just to satisfy the tax bill? An estate plan, worked out with an experienced estate planning attorney who regularly works with family-owned businesses, will include a comprehensive tax plan. Make sure your heirs understand this plan—you may want to bring them with you to a family meeting with the attorney, so everyone is on the same page.

Avoid fracturing your own family. An unhappy truth is that when there is no estate plan, it impacts not just the family business. If some children or family members are involved in the business and others are not, the ones who work in the business may resent having to share any of the business. How to divide your business is up to the business owner. However, making a good plan in advance with the guidance of an experienced advisor and communicating the plan to family members will prevent the family from falling apart.

There’s no way to know how family members will respond when a parent dies. Sometimes death brings out the best in people, and sometimes it brings out the worst. However, by having an estate plan and business plan for the future, you can preclude some of the stresses and strains on the family.

Reference: Augusta Free Press (August 13, 2019) “Own a business? 5 reasons you need an estate plan.”

Family Farm Succession Planning Needs Time and Goals

The future for a farm family depends on family meetings that involve all stakeholders. The likelihood of success is bolstered by meeting in a neutral location, holding short meetings on a regular basis and setting clear goals, according to AgWeb.com’s article “Family Meeting Fundamentals.”

Families who want to hold one meeting a year that covers every single aspect of the succession plan, end up with a room full of confused and sometimes agitated participants. Meetings that occur on a more frequent basis, are more likely to succeed, since the process is complex and takes time to work through.

Make sure to include everyone. Leaving out a family member, like a spouse, can create resentment and lead to angry side disputes. Don’t create trouble, where none is needed!

Be smart about selecting a date for the meetings to take place. Steer clear of holidays, as there are usually enough emotional pitfalls for most families to deal with, without adding the family business into the mix. 

Select a neutral location, where everyone can feel comfortable and that is free of distractions. You really do want their full attention. Select a convenient pleasant location to make these meetings welcoming and attractive.

Set an agenda for the meeting, so you are focused on specific topics and tasks.

You may find you need an outside facilitator to help, if your group dynamics are not working well. If there’s one person who tends to dominate conversations during social gatherings and family meetings, it will be hard to be productive.

If you are working with an estate planning attorney who is experienced in family businesses and particularly with the special challenges of family farms, he or she may be able to help you run the meeting better than if one of the family members steps up to take the lead. You know your family’s dynamics best—if cousin Susan could never get along with her sibling Mark, having an outside person present, may make her think twice about hurling insults.

Reference: AgWeb.com (May 29, 2018) “Family Meeting Fundamentals”

Ikea Founder Passes Away

Most of the time people who appear on lists of the richest people in the world are happy to be on the lists. They sometimes have been known to argue that their wealth has been underestimated and they should be higher on the list than they are.

However, Ingvar Kamprad was unusual.

He is best known for founding the iconic furniture company Ikea. Many might have a bad memory about his company from frustrating attempts at trying to put the furniture together, but Kamprad's family might have different complaints.

He recently passed away at the age of 91. It appears that his family will inherit none of the company, as Bloomberg reports in "What's Going to Happen to Ikea Founder's Billions."

Kamprad always argued that he should not have been considered one of the wealthiest people in the world, because he was not the true owner of Ikea. He structured ownership of the company through a complex series of holding companies. It is not clear that he was the ultimate beneficiary.

He did this specifically, so his family would not gain control of the company after he passed away. The reason? Kamprad did not trust his family to continue Ikea's charitable missions. As a result, his family will not inherit the company and the billions that it is worth.

Most family business owners want their families to inherit their businesses. Nevertheless, as Kamprad's decision shows, there are other options when founders do not think that is a good idea.

Reference: Bloomberg (Jan. 31, 2018) "What's Going to Happen to Ikea Founder's Billions."

Family Business Succession

Sometimes family business operators are aware that after they pass away their businesses will not remain under family control or may cease to exist entirely. If no one in the family is interested and capable of running the business, then it is generally understood that it will not remain under family control.

Those situations, however, do not entirely account for the fact that 70% of family owned businesses fail in the second generation. There are a great number of cases where the family does want to keep running the business, but is unable to do so.

When that happens it is often the result of inadequate planning as Bloomberg points out in "Keeping It in the Family."

A key problem is that succession planning for a family owned business is more difficult than it is for other businesses as there are more stakeholders involved. If the business represents a large portion of an estate, the founder must also plan for how relatives not involved in the business will receive an equitable inheritance.

One of the common mistakes people make is to give ownership control to family members who are not going to be involved in the actual running of the business. That creates tension and fighting with family members who are running the business.

Just because succession planning is more difficult for family owned businesses does not mean that it is impossible. With proper succession and estate planning the business can thrive long after the founder has passed away. For that to happen it is important to not delay the planning, but instead to start as soon as possible.

Contact a qualified estate planning attorney to help at all stages of the succession planning process.

Reference: Bloomberg (April 21, 2016) "Keeping It in the Family."

Worry in Detroit over Lions’ Succession Plan

Like other professional sports leagues the NFL has tight restrictions on who can own a franchise. It is important to the league that ownership be financially stable enough to not put the team in jeopardy. For this reason the current ownership situation of the Tennessee Titans is causing some consternation. 

A lack of succession planning has left the team under the ownership of the multiple heirs of the team’s founder and there is concern that the team might have to be sold.

The Titans are not the only franchise the league is concerned about. The Detroit Lions might also be problematic. 

It had long been assumed that when owner William Clay Ford Sr. passed away, control of the team would pass to his son. However, his wife assumed control of the team instead. As she is 90 years old, some people are worried about who will follow her and assume control of the team. 

The Lions say there is a succession plan in place, but they are not telling anyone what that plan is. 

NBC Sports reported this story in "Lions say Ford family has a succession plan in place."

Most experts believe that for a succession plan to succeed it is important to make it known to heirs and key employees before the current owner passes away. Doing so helps ensure a smooth transfer of power as the designated heir can start taking over while the current owner is alive and able to offer assistance.

Reference: NBC Sports (Feb. 21, 2016) "Lions say Ford family has a succession plan in place."

 

Lessons in the Redstone Saga

Media mogul Sumner Redstone recently stepped down from his roles as chairman of CBS and Viacom amidst stories of his ailing health and accusations of mental incompetence from an ex-mistress. These accusations have opened his succession plans to public scrutiny, which has led to falling stock prices for both companies. 

Redstone owns 80% of National Amusements, through which he still has a controlling stake in both CBS and Viacom. His daughter owns the other 20%. 

After he passes away, Redstone's shares are to be put in trust for his grandchildren. That has led to controversy as the new chairman of Viacom is also one of the trustees. Redstone's daughter claims this is a conflict of interest.

As reported by the New York Times in "When Family Fortunes Beget Vicious Power Struggles" this is not the first time a feud over a family-owned business has been made public when the founder begins to age or passes away. It is actually fairly common when the founder has done little to pave the way for a successor to operate the businesses and instead holds onto control for too long.

The saga over Redstone's media empire is just beginning and it might still work out. However, it should be considered as a lesson for anyone who owns a family business. It is extremely important to have a solid succession plan in place as part of an estate plan and that succession plan should be developed over a period of many years. 

Control should gradually pass from the founder to successors to ensure a smooth handing off of power. An experienced estate planning attorney can help you make this happen.

Reference: New York Times (Feb. 11, 2016) "When Family Fortunes Beget Vicious Power Struggles"

 

Summer Redstone's Succession Plan

Recently it was reported that after 91-year-old Summer Redstone passes away his daughter will take over as chairwoman of CBS and Viacom. The report appears to have been in error as Redstone's publicist claims that who will take over leadership of the companies has not been decided and will be determined by the directors of the companies. 

Additionally, Redstone's estate will be placed into the hands of a seven member trust and plans are in place to ensure that no stock in the companies will need to be sold to pay estate taxes. 

How the latter is to be accomplished is being kept private. 

Bloomberg Business reported the story in an article titled "Redstone Says Trustees to Oversee Estate After Death."

The normal advice is that succession plans for businesses should be clearer about exactly who will take over the business when the current person passes away. 

This makes it possible for the successor to be known and to begin taking on responsibility while the current CEO is around to assist. That helps to ensure a smooth succession. 

However, that advice normally applies to small and family businesses. In the case of major corporations with third party directors, it is not as necessary.

Family business owners should not structure their estate and succession plans as Redstone has done without the advice of an attorney. However, in this case, it appears Mr. Redstone has not necessarily made a mistake.

Reference: Bloomberg Business (May 7, 2015) "Redstone Says Trustees to Oversee Estate After Death."

 

Succession Planning Mistakes to Avoid

Many family businesses begin life as the dream of a driven founder who guides the business to success. However, after that founder passes away, the businesses often flounder in the hands of the next generation. 

While this is not always avoidable, it can be made less likely by avoiding common mistakes in succession planning. 

Recently, the Wills, Trusts & Estates Prof Blog published a list about how to avoid those mistakes in an article titled "Succession Plan Considerations." 

The list includes:

• Start succession planning sooner rather than later.
• Bring in outside advisors to help determine who is the best person to manage the company after the founder passes away.
• Get an appraisal to have an accurate assessment of the value of the business.
• Make the plan and open dialogue with possible successors and family members.
• Do not forget to plan for the estate tax to make sure key parts of the business do not need to be sold off.

If you have questions about how to properly plan for your business after you pass away, consult with an estate planning attorney about how to make succession planning part of your estate plan.